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Problem 11-13 Scenario Analysis (LO2) Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.20 7 % 20 % Normal economy
Problem 11-13 Scenario Analysis (LO2)
Consider the following scenario analysis:
Rate of Return | |||||
Scenario | Probability | Stocks | Bonds | ||
Recession | 0.20 | 7 | % | 20 | % |
Normal economy | 0.60 | 22 | % | 11 | % |
Boom | 0.20 | 33 | % | 7 | % |
a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms?
multiple choice
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No
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Yes
b. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)
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